JT.CIT(OSD) 2(2)(2), MUMBAI V. PUDUMJEE INDUSTRIES LTD, MUMBAI

ITA 1933/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4297 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 27-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKAYEN
• Assessee Lawyers: DHAWAL SHAHAR
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 115JB; 12; 10; 11

Judgement Text

AAYAK AAYAK AAYAK AAYAKR APILAIYA AIQ R APILAIYA AIQ R APILAIYA AIQ R APILAIYA AIQAKRNA N AKRNA N AKRNA N AKRNA NYAAYAPIZ YAAYAPIZ YAAYAPIZ YAAYAPIZ MAMUBA[ MAMUBA[ MAMUBA[ MAMUBA[- -- - MAO MAOMAO MAO. .. . IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR A GGARWAL, AM AAYAKR APILA SA AAYAKR APILA SA AAYAKR APILA SA AAYAKR APILA SAM MM M . / ITA NO.1933/MUM/2018 ( INAQA-ARNA BAYA- / ASSESSMENT YEAR 2013-14) JCIT (OSD) 2(2)(2), MUMBAI. VS. PUDUMJEE INDUSTRIES LTD., 60, JATIA CHAMBERS, DR.V.B. GANDHI MARG (FORT), MUMBAI. ( APILAAQA APILAAQA APILAAQA APILAAQAI II I - -- - / APPELLANT) .. ( P` P`P` P`%YAQAA %YAQAA %YAQAA %YAQAAI II I- -- - / RESPONDENT) PAN NO. AAACP 0487 B REVENUE BY : SHRI ABI RAMA KARTIKAYEN, DR ASSESSEE BY : SHRI DHAWAL SHAH,AR DATE OF HEARING: 13.3.2019 DATE OF PRONOUNCEMENT : 13- - 03- 2019 AADOSA AADOSA AADOSA AADOSA / O R D E R PER MAHAVIR SINGH, JM: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS)-5, MUMBAI [IN SHORT CIT(A)], IN APPEAL NO.CIT(A)-5/ITO-2(2)(3)/IT-90/2016-17/155-17 -18 DATED 24.11.2017. THE ASSESSMENT WAS FRAMED BY THE ITO-2( 2)(3) FOR THE A.Y. 2013-14 VIDE ORDER DATED 30.3.2016 UNDER SECTION 14 3(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER THE ACT). 2 ITA NO1933/MUM/2018 ASSESSMENT YEAR 2013-14 2. THE FIRST ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE OF EX PENSES RELATABLE TO EXEMPT INCOME BY INVOKING THE PROVISIONS OF SECT ION 14A READ WITH RULE 8D(II) OF THE RULES. FOR THIS, THE REVEN UE HAS RAISED THE FOLLOWING TWO GROUNDS: 1. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, ID. CIT(A)/HAS ERRED IN DELETING ADDITION MADE ON ACCOUNT OF DISALLOWANCE U/S 14A R.W. RULE 8D(II) OF THE ACT WI THOUT APPRECIATING THE FACT THAT FROM AY 2008-09 DISALLOWANCE HAS TO BE MANDATORILY BE CALCULATED AS PER RULE 8D?' 3. ''WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION MADE ON ACCOUNT OF DISALLOWANCE U/S 14A R.W. RULE 8D(II) OF THE ACT WI THOUT APPRECIATING THE FACT THAT THE DECISION IN THE CASE OF M/S. HDFC LTD IS NOT APPLICABLE SINCE THE SAME HAS BEEN RENDERED KEEPING IN MIND TH E INVESTMENT OF BANK AND HENCE BANK SPECIFIC?' 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF 10,23,855/- AND CLAIMED THE SAME AS EXEMPT. THE A SSESSING OFFICER AFTER GOING THROUGH THE ACCOUNTS OF THE ASS ESSEE NOTED THAT RULE 8D OF THE I.T.RULES APPLIES TO THE FACTS OF THE CASE AND, ACCORDINGLY, HE DISALLOWED INTEREST EXPENDITURE UNDER RULE 8D(II) AT 88,87,743/- AND ADMINISTRATIVE EXPENSES UNDER RULE 8D(III) BY APPLYING 0.5% OF AV ERAGE VALUE OF TAX FREE INVESTMENTS OF 9,16,580/-, THEREBY THE ASSESSING OFFICER DISALLOWE D THE TOTAL EXPENSES OF 98,03,423/-. AGGRIEVED, THE ASSESSEE PREFERRED APP EAL BEFORE THE CIT(A). 4. THE CIT(A) UPHELD THE DISALLOWANCE OF EXPENSES R ELATABLE TO EXEMPT INCOME BEING 0.5% OF AVERAGE VALUE OF INVESTMENT DI SALLOWED BY THE AO UNDER RULE 8D(III) OF 9,16,580/- AND DELETED THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(II) OF 88,87,743/- BY FOLLOWING THE DECISION OF HONBLE BO MBAY 3 ITA NO1933/MUM/2018 ASSESSMENT YEAR 2013-14 HIGH COURT IN THE CASE OF CIT VS. HDFC BANK, 366 IT R 505 (BOM). AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUM STANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS SHARE CAPITAL RESERVE AMOUNTING TO 40.84 CRORES AND TOTAL INVESTMENT DURING THE YEAR, WHICH GIVES RISE TO EXEMPT INCOME ARE TO THE TUNE O F 17,73,16,229/-. THE ASSESSEE BEFORE THE CIT(A) AND BEFORE US NOW CLAIME D THAT THE ASSESSEES OWN FUNDS ARE MORE THAN TOTAL INVESTMENT , WHICH GIVES RISE TO EXEMPT INCOME AND IN THAT CASE IT IS PRESUMED THAT THE ASSESSEE HAD USED OWN FUNDS FOR INVESTMENT WHICH EARNED EXEMPT I NCOME. HENCE, NO DISALLOWANCE CAN BE MADE UNDER RULE 8D(II) ON ACCOU NT OF INTEREST. LD COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE BALANCE SHEET OF THE ASSESSEE, WHEREIN, SHARE CAPITAL RESERVE TO THE TUN E OF 40,84 CORES IS AVAILABLE AND TOTAL INVESTMENT IS 17.73 CRORES, WHICH IS INVESTED TO EARN EXEMPT INCOME. THERE ARE MIXED FUNDS AND THE ASSES SING OFFICER HAS NOT PROVED ANY NEXUS WITH THE EARNING OF EXEMPT INCOME AND THE INVESTED FUNDS. ONCE THIS IS THE POSITION, THE PRESUMPTION IS THAT THE ASSESSEE HAS INVESTED IN THE INVESTMENT WHICH GIVES RISE TO THE EXEMPT INCOME OUT OF OWN FUNDS IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK (SUPRA). RESPECTFULLY FOLLOWING THE DECISION IN THE CASE OF HDFC BANK (SUPRA), WE AFFIRM THE ORDER OF T HE CIT(A) AND DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 4 ITA NO1933/MUM/2018 ASSESSMENT YEAR 2013-14 6. THE SECOND ISSUE IN THIS APPEAL OF THE REVENUE I S AS REGARDS TO APPLICABILITY OF PROVISIONS OF SECTION 115 JB IN RE SPECT TO DISALLOWANCE OF EXPENDITURE RELATABLE TO EXEMPT INCOME UNDER SECTIO N.14A R.W RULE 8D OF I.T.RULES. FOR THIS, THE REVENUE HAS RAISED THE FO LLOWING GROUND: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, 'THE LD. CIT(A) HAS ERRED IN DIRECTING AO NOT TO A DD THE DISALLOWANCE U/S 14A TO THE BOOK PROFIT U/S 115JB WHILE COMPUTING TH E TOTAL INCOME OF THE APPELLANT RELYING ON THE DECISION OF THE SPECIAL BE NCH OF ITAT DELHI IN THE CASE OF VIREET INVESTMENT PVT LTD (82 TAXMANN.COM 415) OVERLOOKING THE FACT THAT THE AO HAD CORRECTLY MADE THE COMPUTATION AS PER CLAUSE (F) IN EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT WHICH MANDATES DISALLOWANCE OF EXPENDITURE RELATABLE TO THE INCOME TO WHICH SECTION 10 OR SECTION 11 OR SECTION 12 OF THE ACT APPLIES?' 7. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE STATE D THAT FROM THE VERY SAME GROUND OF APPEAL OF THE REVENUE, IT I S CLEAR THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF ITAT D ELHI, SPECIAL BENCH IN THE CASE OF VIREET INVESTMENT PVT LTD., 82 TAXMANN.COM 415(DEL), WHEREIN, IT IS HELD THAT WHILE APPLYING T HE PROVISIONS OF SECTION 115 JB OF THE ACT, THE COMPUTATION UNDER CL AUSE (F) OF EXPLANATION (1) TO SECTION 115 JB(2), THE DISALLOWA NCE IS TO BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEM PLATED UNDER SECTION.14A R.W. RULE 8D OF THE RULES THEREBY THE C IT(A) RELYING ON THE DECISION OF ITAT DELHI SB IN THE CASE OF VIREE T INVESTMENT (SUPRA) DELETED THE DISALLOWANCE. WE FIND THAT THI S ISSUE IS COVERED IN THE CASE OF VIREET INVESTMENT (SUPRA) AND HENCE, CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GROUND OF APPEA L OF THE REVENUE. 5 ITA NO1933/MUM/2018 ASSESSMENT YEAR 2013-14 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13- - 03- 2019. AADOSA KI AADOSA KI AADOSA KI AADOSA KI GAAO GAAOGAAO GAAOYANAA KULA YANAA KULA YANAA KULA YANAA KULAO MAO IDNAMK O MAO IDNAMK O MAO IDNAMK O MAO IDNAMK 15. 03.2019 KAO KI KAO KI KAO KI KAO KI G GG G SD/- SD/- (MANOJ KUMAR AGGARWAL) (MAHAV IR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 13-03- 2019 BKP/SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ASSISTANT REGISTRAR ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT (A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//